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Calif. Market Close: Long Tax-Exempts Rebound As Cal Prices $10B of Rans

NEW YORK – After giving up roughly 70 basis points this week, the long end of the California municipal market rebounded Thursday amid a barrage of short-term new-issue supply, including a $10 billion pricing of California notes.

Traders said tax-exempt yields were lower anywhere from six to 10 basis points out 20 years and longer, while bonds maturing sooner were unchanged.

A Los Angeles trader noted that the market is still being overwhelmed by both retail and institutional bid-wanteds, as has been the case throughout the week.

“It seems to be settling down,” the L.A. trader said. “But we’re still seeing a lot of supply, especially here in California. We’ve got a lot of wood to chop. Several deals have been pulled, and that helps, but there are still a lot of people trying to [issue bonds].”

In the new-issue market Thursday, JPMorgan priced $10 billion of revenue anticipation notes for California in two series, the largest note issuance ever in the muni bond market. The deal breaks the previous record, also set by the Golden State, of a $9 billion sale of Rans in October 2002, according to data from Thomson Reuters.

Notes from the $2.25 billion Series A-1 mature in May 2011, yielding 1.50% with a 3% coupon.

The $7.75 billion Ran Series A-2 matures in June 2011, yielding 1.75% with a 3% coupon.

The notes were originally scheduled to be sold Wednesday, but the pricing was delayed until Thursday due to the issuer needing to disclose a lawsuit filed Tuesday. The suit challenges a plan to sell and then lease back from the private-entity owner 24 State buildings at 11 sites, according to a release from the Treasurer’s office.

The delay also prompted the state to push back pricing its $2.75 billion taxable issuance to Friday. That sale, which includes $2.5 billion of taxable Build America Bonds, was originally set to price Thursday. The amount of the sale was increased from $2 billion Wednesday.

During the three-day retail order period on the notes, California sold $6.06 billion, 60.6% of the total offering.

Of the notes maturing on May 25, 2011, $803.46 million was sold to retail, while $5.26 billion of debt maturing on June 28 of next year went to retail.

“$10 billion in a market beating down issuers left and right? That’s some heavy lifting, and we got it done,” said Tom Dresslar, spokesman for state Treasurer Bill Lockyer, in a release. “Given the inhospitable market environment, the price is very good for taxpayers, and the 60 percent-plus retail demand is a solid achievement.”

The California Rans are rated MIG-1 by Moody's Investors Service, SP-1 by Standard & Poor's, and F2 by Fitch Ratings. California's long-term GO ratings stand at A1 from Moody's and A-minus from Standard & Poor's and Fitch.

The Municipal Market Data's triple-A scale yielded 3.01% in 10 years Thursday, matching Wednesday, while the 20-year scale yielded 4.15%, also matching Wednesday. The scale for 30-year debt dropped 12 basis points to 4.50% Thursday from 4.62% Wednesday.

The MMD 30-year triple-A scale had increased by 70 basis points since last Monday to its highest level in 15 months heading into Thursday, since when it was also 4.62% on Aug. 13, 2009.

Meanwhile, 20-year debt remained at its highest level since July 29 and 30, 2009, when it yielded 4.16%, and 10-year yields stayed at their highest level in seven months, since April 20, when the yield was also 3.01%, according to MMD.

Thursday’s triple-A muni scale in 10 years was at 103.8% of comparable Treasuries and 30-year munis were at 105.1%, according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 113.6% of the comparable London Interbank Offered Rate.

The Treasury market showed some losses Wednesday. The benchmark 10-year note was quoted recently at 2.90% after opening at 2.88%. The 30-year bond was quoted recently at 4.28%, after also opening at 4.28%. The two-year note was quoted recently at 0.51% after opening at 0.48%.

In economic data released Thursday, initial jobless claims edged higher by 2,000 to 439,000 for the week ending Nov. 13 as the number of workers seeking continuing unemployment benefits broke below 4.3 million for the first time in two years.

Continuing jobless claims fell for the fourth straight week dropping to 4.295 million, the lowest level since November 2008.

Economists expected 440,000 initial jobless claims and 4.3 million continuing jobless claims, according to the median estimate from Thomson Reuters.

The composite index of Leading Economic Indicators grew 0.5% in October. LEI was revised to a 0.5% increase in September, originally reported as a 0.3% rise.

Economists polled by Thomson Reuters predicted LEI would be up 0.5% in the month.

Previous Session's Activity
The most actively traded security in the state yesterday was California 6s of 2035, which traded 104 times at a high of 105.659 and a low of 102.176.

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